Incident: The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 6.028 billion yuan, a year-on-year decrease of 9.53%, and net profit to mother of 1.532 billion yuan, a year-on-year decrease of 30.09%, after deducting non-net profit of 1.274 billion yuan, a year-on-year decrease of 23.74%.

On a quarterly basis, in the third quarter of 2024, the company achieved revenue of 1.72 billion yuan, a year-on-year increase of 2.21%, and net profit to mother of 0.411 billion yuan, a year-on-year decrease of 40.95%. After deducting non-net profit of 0.31 billion yuan, a year-on-year decrease of 25.38%. Due to the impact of the 2023Q3 period base and asset disposal revenue, the company's single-quarter results fluctuated.

Expense side: The company's gross profit margin for the first three quarters of 2024 was 50.13%, a year-on-year decrease of 1.43pp; the company's sales expense ratio for the first three quarters of 2024 was 15.44%, the year-on-year increase of 2.61 pp, the management fee ratio was 5.15%, the financial expense ratio was -2.18%, the year-on-year decrease 0.95pp, the R&D expense ratio was 6.72%, up 0.76pp. The company continued to increase its investment in sales and R&D, and the cost ratio increased during the period; the company achieved a net profit margin of 25.44% in the first three quarters of 2024, compared with the same period. The decrease of 7.23pp is mainly related to the higher profit and loss on asset disposal during the same period in 2023.

It focuses on the three core tracks of breathing and oxygen production, blood sugar and POCT, and disinfection and sensory control, and continues to expand into businesses such as first aid, ophthalmology, and intelligent rehabilitation. In terms of the respiratory treatment sector, due to the high demand base after the epidemic during the same period, we expect that some of the company's respiratory treatment products may be under pressure in the short term, but considering the increasing aging demand and the increase in public health awareness, the respiratory treatment business is expected to gradually resume rapid growth in the future. In the field of blood sugar monitoring, the company's BGM and CGM products are working together to promote a continuous increase in terminal market share. At the same time, various new products such as next-generation CGM are also being developed at an accelerated pace, which is expected to further enhance the competitiveness of the blood sugar market. In the disinfection sensory control sector, the company strengthens product promotion and department expansion in the hospital, actively explores new sensory control tracks, and finds new growth points for disinfection and sensory control. In the field of household electronics, the company is actively exploring ways to go overseas, improving product performance in line with local needs, and the domestic market continues to use its brand advantages to expand service. We expect related businesses to grow well. The rehabilitation and clinical device sector, thanks to continued encouragement for the development of traditional Chinese medicine at the policy level and the continuous increase in public awareness, the company is expected to accelerate growth in more innovative traditional Chinese medicine products in the future.

Profit forecast and investment suggestions: According to financial data, we expect that the proportion of high-margin products will continue to increase, driven by products such as respiratory oxygen production, and that the share of high-margin products is expected to continue to rise. At the same time, the tightening of regulatory policies may cause short-term disturbances. It is expected that in 2024-2026, the company will achieve revenue of 8.062, 9.305, and 10.73 billion yuan (8.759, 10.111, 11.662 billion yuan before adjustment) of 1%, 15%, and 15% year-on-year growth. 2.007, 2.311, 2.657 billion yuan (2.069, 2.405, 2.799 billion yuan before adjustment), year-on-year increases of -16%, 15%, and 15%. The company's current stock price corresponds to 17, 15, and 13 times PE in 2024-2026. Considering the accelerated recovery of the company's conventional products and strong growth in emerging businesses, the rapid increase in domestic and foreign brand power after the COVID-19 pandemic, maintaining a “buy” rating.

Risk warning: Risk of product promotion falling short of expectations, risk of policy changes, risk of information being delayed or not updated in a timely manner in public materials used in research reports